Firing back with an adhesion contract

66 posts in this topic

I just started my credit repair journey after several years of letting it tank.

There are several creditors who charged off different accounts, but continue to report new activity every month ($0 payment).

A friend suggested to send a dispute to the data furnishers with a contract of adhesion. Ask them to remove all the negative activity that is re-aging a closed account.

Then tell them that they will be entering into a new agreement, a sort of defamation contract, that specifically prohibits arbitration, that their consent will be indicated by their verifying or reporting information after the account was closed, and that by their action they agree to pay liquidated damages for each violation and each person who receives each false piece of information. The contract also adds more liquidated damages, court and attorney fees if they do not pay within a deadline after receiving demand for payment, and even more liquidated damages if they attempt to invoke arbitration. In case they do not agree with the terms, all they have to do is stop reporting and verifying any new activity. Good luck explaining why the contract is unacceptable, unless they intend to violate it.

I am not a fan of adhesion contracts, but it is just the same way most banks used to add arbitration to their original contracts and many states where their headquarters are located approved those amendments and even made them a part of their laws.

Does it make any sense? Could it work? Has anybody had any luck with this approach?

The CRAs are next. The adhesion contract may be adapted as well, since they should know better than to allow data furnishers to re-age trade lines, but the timing must be right. So a dispute requesting deletion would be first, explaining that it is inaccurate to report both a closed account and new activity, even if the information is "verified" it is obviously inaccurate and that they would be willingly failing to investigate by allowing such a blatant contradiction.

They may delete, but worst case scenario, I expect an automated response claiming they just report whatever the data furnisher tells them, implicitly admitting that they do not really do any research. Next step will be a Method of Verification (MOV) request.

Share this post

Link to post

Share on other sites

There﻿ are several creditors who charged off different accounts, but continue to report new activity every month ($0 payment).

A friend suggested to send a dispute to the data furnishers with a contract of adhesion. Ask ﻿th﻿em ﻿t﻿o remove all the negative activity that is re-aging a closed account.﻿﻿﻿

Reporting a $0 payment does not reage the account or the creditor’s entry on your credit report. The 7-year reporting period is based upon the date of first delinquency (DOFD) or charge-off. See 15 U.S.C. § 1681c(a)(4)

Even if you actually made payments, those payments could not change the DOFD or date of charge-off.

20 minutes ago, cjtx2 said:

T﻿hen﻿ tell th﻿﻿e﻿﻿m that they will be entering into a new agreement, a sort of defamation contract, that specifically prohibits arbitration, that their consent will be indicated by their verifying or reporting information after the account was closed, and that by their action they agree to pay liquidated damages for each violation and each person who receives each false piece of information. The contract also adds more liquid﻿ated damages, court and attorney fees if they do not pay within a deadline after receiving demand for payment, and even more liquidated damages if they attempt to invoke arbitration. In case they do not agree with the terms, all they have to do is stop reporti﻿ng ﻿and verifying any new activity. Good luck explaining why the contract is unacceptable, unless they intend to violate it.﻿

What leads your friend to believe that such a “contract“ would be legal? What law supports the legality of such a contract under the circumstances you describe?

Share this post

Link to post

Share on other sites

Reporting a $0 payment does not reage the account or the creditor’s entry on your credit report. The 7-year reporting period is based upon the date of first delinquency (DOFD) or charge-off. See 15 U.S.C. § 1681c(a)(4)

The statute you refer to deals with charge off accounts reported for no more than 7 years. There is nothing about new $0 payments.

Even if the DOFD remains the same, there is nothing binding FICO not to include fake new activity as a negative factor.

11 minutes ago, BV80 said:

What leads your friend to believe that such a “contract“ would be legal? What law supports the legality of such a contract under the circumstances you describe?

Many years ago, credit card contracts did not include arbitration clauses. Then banks started sending amendments in the form of adhesion contracts. They included mandatory arbitration and many of them required no action from the customer, but continued use of the card indicated acceptance of the new terms. Opting out was more elaborate, but it was usually an option, in which case they would just close the account. At the time it was not clear they could get away with it everywhere, so many states with bank favorable laws, made changes so that single sided changes to the contract were valid.

Share this post

Link to post

Share on other sites

The﻿ statute you refer to deals with charge off accounts reported for no more than 7 years. There is nothing about new $0 payments. ﻿﻿

Even if the DOFD remains the same, there is nothing binding FIC﻿O not to include fake new activit﻿y as a negative factor.﻿﻿

The FCRA states that furnishers must report correct information. What is incorrect about $0 payments?

Is the furniture currently updating each month? Or is it simply showing what had been reported in the past?

29 minutes ago, cjtx2 said:

Many﻿ years ago, credit card contracts did not include arbitration clauses. Then banks started sending amendments in the form of adhesion contracts. They included mandatory arbitration and many of them required no action from the customer, but continued use of the ﻿card indicated acceptance of the new terms. Opting out was more elaborate, but it was usually an option, in which case they would just close the account. At the time﻿ it was not clear they could get away with it everywhere, so many states with bank favorable laws, made changes so that single sided changes to the contract were valid﻿.﻿

That does not answer the question about the legality and enforceability of the contract suggested by your friend.

Share this post

Link to post

Share on other sites

They are reporting new activity every single month. Although $0 payment is technically true, it represents new activity on a closed account.

I have disputed this same issue in the past and sometimes it gets deleted, depending on the CRA or at the very least, the payment history is changed.

I am not sure how to respond to your second question. State laws in several states made adhesion contracts legal/enforceable and in most cases the only requirement is that there is an option to reject the new terms. So a brand new contract should be enforceable, assuming it complies with the requirements of a valid contract.

Share this post

Link to post

Share on other sites

They﻿ are reporting n﻿ew activity every single month. Although $0 payment is technically true, it represents new activity on a closed account.﻿﻿﻿﻿﻿

It is not new activity on a closed account. Reporting information to credit reporting agencies is not account activity. It is information ABOUT the account.

Actual activity on an account and information about an account are two different things.

12 minutes ago, cjtx2 said:

State﻿ la﻿ws in several states made adhesion contracts legal/enforceable and in most cases the only requirement is that there is an option to reject th﻿e new ter﻿ms.﻿ So a brand new contract should be enforceable, assuming it complies with the requirements of a valid contract.﻿﻿

Those state laws should be reviewed to determine who is allowed to make those contracts and under what circumstances. Does your state have such a law and, if so, have you read it?

Link to post

Share on other sites

Although $0 payment is technically true, it represents new activity on a closed account﻿﻿﻿﻿.

No it doesn't. They are updating the account every month, as they are perfectly entitled to do. The only 'trap' you could catch them in is if what they report is inaccurate. So far you haven't claimed the info they report is inaccurate. Forget about this angle and move on to something else.

Share this post

Link to post

Share on other sites

Then﻿﻿ tell them that they will be entering into a new agreement, a sort of defam﻿ation﻿﻿ contract, that specifically prohibits arbitration, that their consent will be indicated by their verifying or reporting informatio﻿n after the account was closed, and that by their action they agree to pay liquidated damages for each violation and each person who receives each false piece of information. The contract also adds more liquidated damages, court and attorney fees if they do not pay within a deadline after receiving demand for payment, and even more liquidated damages if they attempt to invoke arbitration. In case they do not agree with the terms, all they have to do is stop reporting and verifying an﻿﻿﻿y ﻿﻿n﻿ew activity. Good luck explaining why the contract is unacceptable, unless they intend to violate it.﻿﻿﻿

The terms suggested above imply that in the event the furniture does what it is allowed to do by law which is verify and report information (as long as the information is correct), it has accepted the terms of the contract and, thereby, subjects itself to possible litigation even though it may not have done anything wrong.

Another problem is, assuming the card member agreement contains an arbitration provision, you would have to show how your “contract” invalidates the arbitration provision in the cardmember agreement. Simply because you might claim that you’ve entered into a new agreement doesn’t necessarily make it legal or enforceable.

Share this post

Link to post

Share on other sites

No it doesn't. They are updating the account every month, as they are perfectly entitled to do. The only 'trap' you could catch them in is if what they report is inaccurate. So far you haven't claimed the info they report is inaccurate. Forget about this angle and move on to something else.

Ok. I still do not understand what exactly is it they are updating since there is nothing to update.

The reports you get from myfico show each of those $0 payments as an additional (seriously delinquent/charge off) late payment, and they even highlight it in red on your payment history. It makes no sense that myfico shows all these late payments that have no impact whatsoever and misleads you by representing them exactly the same as a real late payment. They are also listed as older derogatory events.

I have seen other furnishers update an account without affecting the payment history, so there is something fishy about it.

Share this post

Link to post

Share on other sites

The terms suggested above imply that in the event the furniture does what it is allowed to do by law which is verify and report information (as long as the information is correct), it has accepted the terms of the contract and, thereby, subjects itself to possible litigation even though it may not have done anything wrong.

Another problem is, assuming the card member agreement contains an arbitration provision, you would have to show how your “contract” invalidates the arbitration provision in the cardmember agreement. Simply because you might claim that you’ve entered into a new agreement doesn’t necessarily make it legal or enforceable.

If what you say is true, and a new late payment does not make any difference, and if the other information is correct, they are not really updating anything, so what exactly do they gain by continuing to report the same thing over and over again? Are they losing anything by not having to re-report every month?

The second part of your statement is more complicated. It would require showing that one contract does not interfere with the other, so basically show that once an account was charged off, especially if the information correct as of the date of charge off, the payment history does not change every month,. Notice that even if they sell it and the balance becomes $0, the payment history does not have to change, only the balance and the status. The contract does not force them to stop reporting, the only limitation is changes in payment history.

Share this post

Link to post

Share on other sites

Those state laws should be reviewed to determine who is allowed to make those contracts and under what circumstances. Does your state have such a law and, if so, have you read it?

Not my state, but most card agreements have a choice of forum provision and the card's state usually has it. I have read the laws from a couple of states and as long as the contract in otherwise valid, the only major requirement is that there must be a way to opt out if you do not agree with the terms.

Share this post

Link to post

Share on other sites

If﻿ what you say is true, and a new late payment does not make any difference, and if the other information is correct, they are not really upda﻿ting anything, so what exactly do they gain by continuing to report the same thing over and over again? Are they losing anything by not having to r﻿e-report every mo﻿nth?﻿

As long as the information is correct, they are updating because they’re allowed to do so. It’s a simple as that.

29 minutes ago, cjtx2 said:

The﻿ second part of your statement is more complicated. It would require showing that one contract does not interfere with the other, so basically show that once an account was charged off, especially if the information correct as of the date of charge off, the payment histor﻿y does not change every month,. Notice that even if they sell it and the balance becomes $0, the payment history does not have to change, only th﻿e b﻿alanc﻿e and the status. The contract does not force them to stop reporting, the only limitation is changes in payment history.﻿﻿﻿

Again showing that you have paid nothing is not incorrect. That is part of the history of the account.

That “contact” really isn’t necessary because all you have to do is dispute with the credit reporting agencies. If the furnisher verifies incorrect information that you can prove is incorrect, you possibly have a claim under the FCRA.

23 minutes ago, cjtx2 said:

Not﻿ my state, but most card agreements have a choice of forum provision and the card's state usually has it. I have read the laws from a couple﻿ of states and as long ﻿as the contra﻿ct in otherwise valid, the only major requirement is that there must be a way to opt out if you do not agree with the terms.﻿

The only way they could opt out would be to delete possible correct information and cease reporting information that you believe is false even though it’s actually correct. Those terms would be considered unconscionable.

If it were as easy as you claim, a consumer could send a contract to their mortgage company along with the check for any amount and state that cashing the enclosed check constitutes payment in full for his home.

Share this post

Link to post

Share on other sites

That “contact” really isn’t necessary because all you have to do is dispute with the credit reporting agencies. If the furnisher verifies incorrect information that you can prove is incorrect, you possibly have a claim under the FCRA.

Even when you prove that they are reporting incorrect info, the burden of proof to show willful non-compliance is very high, plus you have to show damages, not just that they violated FCRA. The way they interpret it around here (5th circuit) makes it almost useless.

43 minutes ago, BV80 said:

If it were as easy as you claim, a consumer could send a contract to their mortgage company along with the check for any amount and state that cashing the enclosed check constitutes payment in full for his home.

I have read about several unsuccessful attempts to do just that. The issue is there is no real chance to opt-out. The payment is part of an established contract. It would require more than just cashing the check to accept new terms.

Link to post

Share on other sites

I still do not understand what exactly is it they are updating since there is nothing to update.

They are updating to report the fact that the account remains past due and that you have made no payment. There is nothing fishy about this. Many (most?) creditors don't bother updating once the account goes to charge-off status, but some do. Cap1 is notorious for this. Perhaps the $0 payment update does in fact cause more FICO damage than if they simply report "past due" every month, but the fact remains that it's not inaccurate, and thus not a violation.

Share this post

Link to post

Share on other sites

They are updating to report the fact that the account remains past due and that you have made no payment. There is nothing fishy about this. Many (most?) creditors don't bother updating once the account goes to charge-off status, but some do. Cap1 is notorious for this. Perhaps the $0 payment update does in fact cause more FICO damage than if they simply report "past due" every month, but the fact remains that it's not inaccurate, and thus not a violation.

Thank you!

Cap1 is notorious for pushing the envelope. For a long time they did not report credit limits because they claimed it was confidential/proprietary or something ridiculous along those lines. It took many lawsuits until they finally had to do the right thing.

They also report business accounts on personal reports.

So, two "accurate" reports can produce completely different FICO scores depending on whether the creditor continues reporting negative info every month or just gives up at charge off.

I am not convinced that they just stop reporting out of the goodness of their heart. I am a little rusty so I need to do some research, but I suspect there are guidelines within Metro2 reporting that require furnishers to stop reporting payment history after charge off.

So even if their reporting is technically accurate, their own industry standard makes it un-reportable. Does that make sense?

Link to post

Share on other sites

I am not convinced that they just stop reporting out of the goodness of their heart

You're correct. They stop because it costs them money each time they update. Most creditors realize there is no gain to be had from that added expense.

3 minutes ago, cjtx2 said:

I suspect there are guidelines within Metro2 reporting that require furnishers to stop reporting payment history after charge off.

Only if they sell the debt. If they own it, they can report every month for the entire 7 year period. In any event, Metro2 doesn't dictate what creditors can/can't report. The FCRA does, and the only limitations on what a creditor can report (re: derogatory info) is that the info must be accurate and the DOLA on the account must be less than 7 years old.

Share this post

Link to post

Share on other sites

Field 17B (Payment Rating) must be left blank when the Account Status (Field 17A) is 97 (charge-off).

Otherwise, when the Account Status is certain (active account) codes, it indicates how late the account was.

I have not found special instructions for field 18, which has the 24 month payment history.

But I suspect part of the problem is that these rogue furnishers report a payment rating in Field 17B, when they are not supposed to and because of that the information reported is inaccurate, even if the watered down version the CRAs disclose to consumers does not make this inaccuracy apparent, unless you look at the raw data in the file, which is what must be accurate, not just the abbreviated report we get to see.

Share this post

Link to post

Share on other sites

Show me where in the FCRA the Credit Reporting Resource Guide is referenced.

FCRA requires that the consumer's credit file is accurate.

The CRRG was developed by representatives from the 3 CRAs to tell furnishers how to report information using Metro2 so that the files stored by the CRAs are an accurate picture of the consumer's account.It is an industry standard.

A data furnisher would have a hard time explaining how reporting information for a charge off, when CRRG explicitly bans it, can be considered accurate.

At the same time, a CRA that allowed forbidden information would be hard pressed to claim it is accurate. Either the additional info must be removed or the whole trade line is inaccurate.

Share this post

Link to post

Share on other sites

As long as the information is correct, they are updating because they’re allowed to do so. It’s a simple as that.

Again showing that you have paid nothing is not incorrect. That is part of the history of the account.

That “contact” really isn’t necessary because all you have to do is dispute with the credit reporting agencies. If the furnisher verifies incorrect information that you can prove is incorrect, you possibly have a claim under the FCRA.

The only way they could opt out would be to delete possible correct information and cease reporting information that you believe is false even though it’s actually correct. Those terms would be considered unconscionable.

You are assuming that what they report is correct.

I have been doing some research and I found a thread here where Methus explains it the way I understand it, but was unable to verbalize.

Basically, he explains that a charge-off is a one time accounting event. Once your account reaches that status, there is no new activity to be reported, the account is closed and the status and the date of the status cannot change. It is a major accounting event that is required by FDIC, among others, so there is consistency for financial institutions that must consider the balance a loss timely, instead of dragging the date of charge off in hopes to extend the date the account would be removed.

The payment history reflects activity on the account. An account can only be charged off once as an activity. Metro2 allows furnishers to report "D" in the payment history to indicate that there is no history available for a particular month. Reporting multiple charge offs in the payment history does not reflect the status of the account. It shows charge off after charge off with the sole purpose of tanking consumers's FICO scores and force them to settle.

The terms of the adhesion contract are not unconscionable because they should not be reporting new charge offs in the first place.

Share this post

Link to post

Share on other sites

It is not new activity on a closed account. Reporting information to credit reporting agencies is not account activity. It is information ABOUT the account.

Actual activity on an account and information about an account are two different things.

Exactly! You are pointing out the difference between account status and account activity.

The charge off status is the result of certain activity. That activity does not repeat itself because once the account is charged off, the status stays the same no matter what, even if they sell it or you pay it in full or in part.

Unfortunately, the name of the activity (charge-off) is the same as the name of the account status (charge-off) and it makes it difficult for the average consumer to differentiate between the two. And allows sleazy furnishers to get away with murder.

I have been doing some research and I found a thread here where Methus explains it the way I understand it, but was unable to verbalize.

Basically, he explains that a charge-off is a one time accounting event. Once your account reaches that status, there is no new activity to be reported, the account is closed and the status and the date of the status cannot change. It is a major accounting event that is required by FDIC, among others, so there is consistency for financial institutions that must consider the balance a loss timely, instead of dragging the date of charge off in hopes to extend the date the account would be removed.

The payment history reflects activity on the account. An account can only be charged off once as an activity. Metro2 allows furnishers to report "D" in the payment history to indicate that there is no history available for a particular month. Reporting multiple charge offs in the payment history does not reflect the status of the account. It shows charge off after charge off with the sole purpose of tanking consumers's FICO scores and force them to settle.

The terms of the adhesion contract are not unconscionable because they should not be reporting new charge offs in the first place. ﻿

I said "as long as the information is correct".

The opinion of Methus is his opinion. Others disagree.

Is the account charged off? Yes. Any reasonable person would understand that the same account is not being charged off every month. Therefore, the status of "charged off" is correct.

As I stated before, you don't even need the illusory contract. If you truly believe the FCRA or some other consumer statute has been violated, then sue. If you can prove your claims, you don't need a "contract".

Also, the reason the information is being reported is because you breached the contract with the creditor. You're merely trying to avoid the negative ramifications of your action.

Finally, I'm not sure any court would agree that the "contract" you suggest is valid. Contracts contain mutual obligations. What is the obligation on your part?

Share this post

Link to post

Share on other sites

What is inaccurate about what they are reporting? (I'm pretty sure I asked this before....)

Sorry for not addressing you directly. Multiple charge off activity is inaccurate. The status is reported as charge-off, which is right, but on the payment activity history, every month there is a new charge off.

As I tried to explain, a charge off is the status of the account and there is only one activity from the accounting point of view, at a certain point of time that triggers going from an open account that is late to a charge off. That activity is also called a charge off, by the CRAs and it can only happen one time. Once the account status changed, there is no possible activity that can change the status of the account back to current or X days late, so there is nothing to report anymore. Whether you pay it in part, the charge off status does not change, and if you pay it in full it changes to paid in full but was a charge off. They can sell it and the status continues to be a charge off.

Notice that the activity can be either current, 30 days late, 60 days late, etc. and it also changes the status of the account to current, or X numbers late, etc.

There cannot be multiple charge offs (as monthly activity) so my report is inaccurate for reporting this false activity every month.

So why only one charge off activity? From the accounting point of view there can only be one charge off, but there is also regulation from FDIC (and others) allowing creditors only one charge off per account. Telling the CRAs that an account is charged off every moth is a lie.